8 FAQs about EMV credit cards

It’s been almost two years since the
nationwide shift to EMV officially began.

EMV
-- which stands for Europay, Mastercard and Visa -- is a global standard for
cards equipped with computer chips and the technology used to authenticate
chip-card transactions. In
the wake of numerous large-scale data breaches and increasing rates of
counterfeit card fraud, U.S. card issuers have migrated to this new technology
to protect consumers and reduce the costs of fraud.

"These
new and improved cards are being deployed to improve payment security, making
it more difficult for fraudsters to successfully counterfeit cards," says
Julie Conroy, research director for retail banking at Aite Group, a financial
industry research company. "It's an important step forward."

For
merchants and financial institutions, the switch to EMV means adding new
in-store technology and internal processing systems, and complying with new
liability rules. For consumers, it means learning a new
payment processes.

Want
to know more about the ongoing transition and your EMV chip-equipped credit card? Here are
eight frequently asked questions to help you understand the changes.

"If
someone copies a mag stripe, they can easily replicate that data over and over
again because it doesn't change," says Dave Witts, president of U.S.
payment systems for Creditcall, a payment gateway and EMV software developer.

Unlike
magnetic-stripe cards, every time an EMV card is used for payment, the card
chip creates a unique transaction code that cannot be used again.

If
a hacker stole the chip information from one specific point of sale, typical
card duplication would never work "because the stolen transaction number
created in that instance wouldn't be usable again and the card would just get
denied," Witts says.

EMV
technology will not prevent data breaches from occurring, but it will make it
much harder for criminals to successfully profit from what they steal.

Experts
hope it will help significantly reduce fraud in the U.S., which has doubled in
the past seven years as criminals have shied away from countries that already
have transitioned to EMV cards, Conroy says.

"The
introduction of dynamic data is what makes EMV cards so effective at bringing
down counterfeit card rates in other countries," she says.

Counterfeit fraud rates have already
decreased in the U.S. as a result of EMV adoption, according to Mastercard and
Visa. In March 2017, chip-enabled merchants saw a 58 percent drop in
counterfeit fraud compared to a year earlier, according to Visa. Mastercard noticed a difference even earlier: It recorded
a 54 percent decrease in counterfeit fraud costs among its EMV-ready merchants
from April 2015 to April 2016.

Just
like magnetic-stripe cards, EMV cards are processed for payment in two steps:
card reading and transaction verification. However,
with EMV cards you no longer have to master a quick, fluid card swipe in the
right direction. Chip cards are read in a different way.

"Instead
of going to a register and swiping your card, you are going to do what is
called 'card dipping' instead, which means inserting your card into a terminal
slot and waiting for it to process," Conroy says.

When
an EMV card is dipped, data flows between the card chip and the issuing
financial institution to verify the card's legitimacy and create the unique
transaction data. This process isn't as quick as a magnetic-stripe swipe.

"It
will take a tiny bit longer for that transmission of data to happen,"
Witts says. "If a person just sticks the card in and pulls it out, the
transaction will likely be denied. A little bit of patience will be
involved."

While chip card transactions may
take a bit longer than mag stripe transactions, total card processing time will
vary between merchants and eventually speed up as the new payment environment
is improved.

“It will vary depending on the merchant, the
equipment and the point-of-sale system,” Ferenczi said. “I think that time lag
overtime will be reduced for those longer transactions.”

Wait, what's the card called?

The new EMV cards in the U.S. might be called any of the following terms:

Smart card

Chip card

Smart-chip card

Chip-enabled smart card

Chip-and-choice card (PIN or signature)

EMV smart card

EMV card

3.
Is card dipping the only option?

Not
necessarily. EMV cards can also support contactless card reading, also known as near field communication. Instead
of dipping or swiping, NFC-equipped cards are tapped against a terminal scanner
that can pick up the card data from the embedded computer chip.

"Contactless
transactions are more consumer-friendly because you just have to tap," said
Martin Ferenczi, president of Oberthur Technologies, the leading global EMV
product and service provider. "Around the world, there is a move to make
EMV cards dual-interface, which means contact and contactless. However, in the
U.S., most financial instructions are issuing contact cards."

Dual-interface
cards and the equipment needed to scan them are expensive. Right now, the first
step is to successfully integrate EMV cards into the U.S. shopping scene. Dual interface will arrive later, although
they are in production and rolling out slowly now, according to Ferenczi.

“Dual-interface cards, which in 2016
represented less than 5 percent of total EMV cards in the U.S., will have
significant growth in 2017,” Ferenczi said. “Issuers want to offer their
cardholders the added level of speed and convenience provided by tapping.”

4.
Will I still have to sign or enter a PIN for my card transaction?

Yes
and no. You will have to do one of those verification methods, but it depends
on the verification method tied to your EMV card, not if your card is debit or
credit. Chip-and-PIN cards operate just like the checking-account debit card you have been using for
years.

Entering
a PIN connects the payment terminal to the payment processor for real-time
transaction verification and approval. However, many payment processors are not
equipped with the technology needed to handle EMV chip-and-PIN credit
transactions. So it is not likely you will have to memorize new PINs anytime
soon, according to Conroy.

"There
aren't going to be many issuers requiring a PIN," she says. "A vast
majority will be issuing chip-and-signature cards, which aren't all that
different from how credit cards work now."

As
with a magnetic-stripe credit card, you sign on the point-of-sale terminal to
take responsibility for the payment when making a chip-and-signature card
transaction.

U.S. chip-and-PIN cards will be
transitioned in slowly, according to Ferenczi.

"The
card production demand today is really based on chip-and-signature cards,"
he says. "It will probably take two to three years to fully convert to
chip-and-PIN."

Despite
a slow transition overall, those who get chip-and-PIN cards will be able to use
them right away.

"If
a terminal doesn't have the ability to accept a PIN, it will then step down to
accepting a signature," says Randy Vanderhoof, executive director of the
Smart Card Alliance. "There will always be a secondary option."

Chip cards, by the numbers

The Numbers

855
million: Estimated number of
chip cards issued to U.S. consumers so far, per U.S. Payments Forum estimates

85%: Estimated percentage of all U.S. credit cards issued with chips at the end of July 2017, per CPI Card Group

60%: Percentage of U.S. debit cards issued with chips by the end of July 2017, per CPI Card Group

$2-$4: Approximately cost of issuing a new EMV card, per First Data

15 million: Estimated total number of point-of-sale terminals that have to be upgraded to accept chip cards, per Javelin Research & Strategy

$6.75 billion: Estimated cost of replacing the 15 million POS terminals with chip card-compliant machines, per Javelin Research & Strategy

50-52%: Estimated percentage of merchant locations currently ready to process chip card payments, per Visa,
U.S. Payments Forum and Strawhecker Group estimates

1.81-2.3 million: Estimated number of U.S. point-of-sale terminals enabled to accept chip card payments, per Mastercard and Visa estimates.

Updated: August 21, 2017

5.
If fraud occurs after EMV cards are issued, who will be liable for the costs?

If an in-store transaction is conducted using a counterfeit, stolen or
otherwise compromised card, consumer losses from that transaction fall back on
the payment processor or issuing bank, depending on the card's terms and
conditions.

Since the Oct. 1, 2015 deadline created by major U.S. credit card issuers Mastercard,
Visa, Discover and American Express, the liability for card-present fraud has shifted to
whichever party is the least EMV-compliant in a fraudulent transaction.

Consider
the example of a financial institution that issues a chip card used at a
merchant that has not changed its system to accept chip technology. This allows
a counterfeit card to be successfully used.

"The
cost of the fraud will fall back on the merchant," Ferenczi says.

The change is intended to help bring the
entire payment industry on board with EMV by encouraging compliance to avoid
liability costs.

Today, any
parties not EMV-ready could face much higher costs in the event
of a large data breach.

“Given the migration challenges for
implementing EMV in the petroleum environment, Visa's and Mastercard’s
modification of the liability shift dates will be beneficial to the retail
petroleum industry and the U.S. chip migration,” Vanderhoof explained in an
emailed statement.

So for now, gas stations do not fall
under the existing EMV fraud liability shift rules. ATMs still have two fraud
liability shift dates: Mastercard’s that passed in October 2016 and
Visa’s in October 2017. Until both dates pass, ATMs will follow existing fraud
liability rulings.

6.
So since Oct. 1, 2015, is the transition to EMV technology complete?

Not yet.

Although
the deadline was strong encouragement for all payment processing
parties to become EMV-compliant as soon as possible, not everyone has made the transition yet.

“Most countries that migrated to EMV
have four or five banks that issue cards and a couple of acquirers that provide
a service to merchants,” said Jason Oxman, chief executive officer of the
Electronic Transactions Association. “We have 13,000 financial institutions in
the U.S. that issue credit and debit cards, and we have 5 million merchant
locations in the U.S. that accept debit and credit cards. So it’s a massive undertaking.”

EMV
debit cards have rolled out at a slower pace. Approximately 25 percent of U.S.
debit cards were issued as EMV chip cards by the end of 2015, according to
Mercator Advisory Group’s Sarah Grotta, director of Debit Advisory Service.
That ratio rose to 33 percent by the end of June 2016, and today, approximately
60 percent of issuer's debit cards are EMV chip-equipped, according to CPI Card
Group estimates.

EMV debit cards are slowly being issued because banks have to prep their software to accept those new
cards as well, according to Ferenczi.

The majority of chip
cards in the hands of cardholders today have come from larger issuers auch as
Bank of America and Chase, according to the Federal Reserve Bank of Chicago.
The cost of this EMV transition is causing smaller banks to convert their cards
more slowly.

The EMV credit card rollout,
however, is progressing steadily. More than 449 million Visa chip cards have
been issued in the U.S. overall so far, as of June 2017.
About 68 percent of Mastercard-branded credit and debit cards have been issued
with chips so far, as of Oct. 1, 2016. For all U.S. credit cards, CPI Card
Group estimates approximately 85 percent of cards now have chips on them.
Overall, 70 percent of cards (debit and credit) have been converted to EMV, per
CPI Card Group.

If some of the cards in your wallet have yet to be issued with chips, don't fret.

"Different companies have
different rollout strategies," says Doug Johnson, vice president of risk
management policy for the American Bankers Association. Some will base their
actions on card expiration dates; others will work to get chip cards into the
consumer's hands as soon as possible.

“I think the progress we are seeing
today is promising,” said Chiro Aikat, senior vice president of product
delivery (EMV) at Mastercard.

What about mobile payment readers?

EMV-compatible card readers for Android and iOS devices that can read contactless mobile payments and process dipped chip cards. Merchants can purchase the devices for $49.

7.
If I want to use my chip-card at a retailer that doesn't support EMV technology
yet, will it work?

Yes.
The first round of EMV cards -- many of which are in consumers' hands
-- will be equipped with both chip and magnetic-stripe functions so consumer
spending is not disrupted and merchants can adjust.

If
you find yourself at a point-of-sale terminal and are not sure whether to dip
or swipe your card, have no fear. The terminal will walk you through the
process.

"For
example, if you enter a card into the chip reader slot but the reader isn't
activated yet, it will come up with an error and you'll be prompted to swipe
the card in order to use it," Vanderhoof says.

And
vice-versa.

"If
a consumer tries to swipe a chip card instead of inserting it, an error will
appear and they will be prompted to insert the card for chip processing
instead," Vanderhoof says.

If
chip-card readers are not in place at a merchant at all, your EMV card can be
read with a swipe, just like a traditional magnetic-stripe card.

"You
can still conduct transactions, you just lose that extra level of chip
security," Johnson says.

While many large retailers, such as
Walmart, Target and Costco, have upgraded their POS terminals and have
activated them for chip card acceptance, many U.S. retail locations are still not
EMV-ready.

Visa says 50 percent of U.S. stores
(approximately 2.3 million merchant locations) now accept chip cards, as of June
2017. Mastercard has tallied 2.3 million chip-active merchant locations on its
network, representing 38 percent of all U.S. merchants back in October 2016.
Industry experts expect the merchant migration to slowly continue over the next
few years, especially as the remaining liability shift dates get closer.

“I expect to see a slow and gradual
increase of merchant moving over, just like we’ve seen up until today, as each
merchant makes an assessment if this expenditure makes sense for them and their
particular business,” said Mallory Duncan, senior vice president and general
counsel at the National Retail Federation.

In July 2017, U.S. Payments Forum
estimated 45 to 50 percent of U.S. credit and debit card transactions were chip-on-chip.

8.
Will I be able to use my EMV card when I travel outside the country?

Yes and no.

The
U.S. is the last major market still using the magnetic-stripe card system. Many
European countries moved to EMV technology years ago to combat high fraud
rates. That shift has left many U.S. consumers who have magnetic-stripe cards
looking for other forms of payment when they travel.

Since many foreign merchants are wary of magnetic-stripe cards, consumers who hold
some type of chip card may run into fewer issues than those without one,
according to Ferenczi.

"Just
the existence of the chip will likely make European merchants more willing to
accept transactions that they wouldn't have likely accepted if a customer
presented a mag-stripe card," he say, which is good news for traveling U.S.
cardholders.

However,
chip-and-PIN cards are the norm in most other countries that support EMV
technology. So consumers with chip-and-signature cards may find some merchants
who are unwilling or unable to process their card, even though it does have an
embedded chip.

But
despite any difficulties in the transition, Ferenczi says the change is a step
in the right direction.

"Nobody
likes to think that his or her card is being secretly used for other
purposes," he says. "So I think regardless, there is a level of
comfort knowing that it will be far more difficult to counterfeit EMV
cards."

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